A public hearing related to the regulation and taxation of the burgeoning daily fantasy sports industry is set for a proposal in Massachusetts. Earlier this year, State Sen. Eileen Donoghue has introduced legislation making the provision of online games legal and subject to a 15 percent tax. This Wednesday, a legislative committee is to hear testimony on the bill and a decision is expected to be taken by the end of July this year.
As it can be recalled, Massachusetts legalized paid-entry daily fantasy sports contests in 2016, but the state imposed temporary regulations. Under the current law, companies do not pay any fees or taxes for operating in Massachusetts. However, the law is to expire this summer and the legislative committee is set to act by 31st July this year.
Under the proposed legislative package, daily fantasy sports operators such as Boston-based DraftKings will be allowed to offer contests if they comply with the regulations and pay 15% tax on revenues from their games. Another provision includes new operators to pay an initial registration fee of up to $100,000. The Massachusetts Gaming Commission will be tasked with overseeing the industry, if Donoghue’s bill becomes law.
Tax Proposal Stirs Concerns among Industry-Involved Companies
Daily fantasy sports are online contests in which players compete for cash prizes by assembling virtual teams of real professional sports players. The outcome of the competition is dependent on the statistical performance of the players in real games.
It is interesting to note that Sen. Eileen Donoghue is a Lowell Democrat who was Chair of a special legislative commission that studied the industry. Her bill is largely based on the recommendations of the commission, which aims at establishing a particular regulatory regime that is to govern the daily fantasy sports industry.
Needless to say, the introduction of a new form of gambling is to contribute to the state revenue. According to many industry observers, the revenue, which the state is believed to receive from daily fantasy sports contests will significantly foster economic growth.
Given the popularity of the daily fantasy sports industry and its potential growth, this type of gambling could help the state bring more revenues to the local economy.The proposed 15% tax on the company’s gross gaming revenue is close to rates in Pennsylvania, New York, and Delaware, but higher than in many other states.
The Fantasy Sports Trade Association is concerned that the heavy taxes may discourage small companies from entering Massachusetts market. Quite unsurprisingly, burdensome tax rates tend to call a massive exodus of operators. In other words, if there are a number of factors that determine the profitability of one market, taxation is the most important of all.